What is a Landlord Subordination Agreement?

Do you need one?

Small businesses, especially start-ups, may not be able to afford space to run their business, which means renting out an office is the only option. This is where SBA Loans come into play; but it’s not only about the loan, you should know about a landlord subordination agreement and how it can affect your business. It may be the determining factor on getting a lessor’s signature.

Small Business Loans Depot says, “Lenders require landlord waivers to avoid complications in the event of default. If a loan involves collateral that is on the premises of the borrower who leases the property rather than owns it, the landlord waiver allows the lender to enter the property and obtain the collateral in the event of a default. If the lender were to not require a signed landlord waiver, they could not enter the premises of the borrower to take their collateral.”

Needing one of these may be a real pain when trying to qualify for an SBA Loan; landlords may not want to sign as they might lose their potential claim on collateral if you happen to default on your lease. By them not signing the agreement, this could prolong your loan application.

Read a more in depth article from FunderaLedger.